USD/JPY tracks downbeat Treasury yields to stay pressured below 114.00 ahead of Fed

• USD/JPY remains on the back foot around intraday low, extends previous day’s losses.
• US T-bond yields struggle to overcome five-day downtrend amid pre-Fed anxiety, as well as geopolitical and growth fears.
• BOJ Summary of Opinions highlights Omicron fears over Japan’s economy.
• Second-tier data from Japan, the US may entertain traders ahead of the Fed’s verdict.

USD/JPY holds lower ground near the intraday low of 113.79 as Tokyo opens for Wednesday.

The risk barometer pair drops for the second consecutive day amid the market’s anxiety ahead of the US Federal Reserve (Fed) meeting joins geopolitical risks emanating from Russia and Omicron woes in Japan, not to forget downbeat economic forecasts by the International Monetary Fund (IMF).

As per the latest Bank of Japan (BOJ) Summary of Opinions, “Uncertainty over Japan's economic outlook heightening due to increase in omicron coronavirus cases.” The policy document conveying the January meeting talks also states, “BOJ must take additional easing steps as needed, appropriate to maintain current forward guidance on interest rates, monetary base commitment.”

It should be noted that the South African covid variant has been troubling Japan the most of late. “Japan on Tuesday expanded a COVID-19 quasi-state of emergency to 34 of the nation's 47 prefectures with the addition of 18 more areas, as the country continues to battle record coronavirus infections amid the rapid spread of the Omicron variant,” said Kyodo News.

The virus also pushed policymakers at the IMF to downgrade global growth forecasts as No.2 official Gita Gopinath said, “We project global growth this year at 4.4%, 0.5 percentage point lower than previously forecast, mainly because of downgrades for the United States and China,” per Reuters.

Elsewhere, the US, the UK and European Union (EU) are determined to levy economic sanctions on Russia if it invades Ukraine, which in turn keeps geopolitical fears on the table. However, the latest updates suggest receding fears of an imminent war between Moscow and Kyiv.

Furthermore, the recent passage of the America COMPETES Act offers extra support to the gold prices amid fears of escalating US-China tussles.

Moving on, the Fed’s action will be crucial for the USD/JPY prices while sentiment numbers from Japan and housing data from the US, as well the trade figures, could offer intermediate moves.

On Tuesday, the Fed hawks ignored softer US CB Consumer Confidence and Richmond Fed Manufacturing Index figures on firmer US inflation expectations, per the 10-year, breakeven inflation rate per the St. Louis Federal Reserve (FRED) data, which in turn favored gold buyers. The inflation gauge rose for the third consecutive day at the latest after declining to the lowest since September on January 20.

Read: Federal Reserve Interest Rate Decision Preview: Inflation, Omicron and equities

Technical analysis

A three-week-old descending triangle bullish chart pattern restricts short-term USD/JPY moves between 114.30 and 113.45. However, bearish MACD signals and downward sloping RSI line, not oversold, keep sellers hopeful.